FRY and IMF

Signal for Investors

AIM Belgrade, December 3, 2000

The speed with which the doors of the international community are opening for Yugoslavia in the political sphere is expected to get its confirmation in the field of finances by the middle of December. Yugoslav officials are announcing that that is when Yugoslavia could become a member of the International Monetary Fund (IMF) which it was expelled from in May 1992. This possibility was confirmed by the representative of IMF Tom Dawson who declared that "the membership of FRY in the IMF will be regulated in six weeks". The delegation of the IMF was the first to arrive in Belgrade after three years, and most of the talks between the representatives of the IMF and the government of Yugoslavia was devoted to paying outstanding debts and an agreement on which countries would participate in providing credits for the purpose since Yugoslavia has no money for that. Judging by the statements of vice premier Miroljub Labus, this part of the talks was easily completed since the "obligations to the IMF are worth about 130 million dollars, and Norway has offered to pay that sum, and we will immediately return that loan by withdrawing our quotas in the Fund". According to Labus's words it was also agreed that "now we have two favourable options for the constituencies which we would become part of within the IMF: the Swiss and the Italian and we must soon choose between these two proposals". But as the head of Yugoslav delegation in negotiations with the IMF, he personally would wish "to see soon after joining the IMF a stand-by arrangement which would imply that we ourselves must have a programme of measures which would precisely state what we shall do after the renewal of membership".

There is no doubt that for the new Yugoslav authorities renewal of membership in the IMF is very important because they are aware that it is a "signal for all the other investors" or as Dr. Dejan Jovovic, one of the leading experts on the IMF and the World Bank (WB), says "it is the first step and the condition for loans of the World Bank, the European Bank of Reconstruction and Development, the Paris and the London Club". The support of the "world financial policeman" is at the same time proof for other possible investors that a country is pursuing an economic policy which complies to acceptable world standards. And this means that the country has a completely independent central bank, that there is an established unique balanced exchange rate of the national currency, that financing of public expenditures is transparent without a concealed deficit and that it comes from real sources, that there are no restrictive foreign trade regulations, that the prices on the internal market are formed freely, that the privatisation process is progressing".

That is why, after the IMF as the front-runner, capital begins to arrive from commercial banks, investment funds, international companies, individual investors, which is usually several times bigger that the initial one of the IMF. Dr. Dejan Jovovic is precise - 3 to 5 dollars per every dollar of the credit of the IMF. That is how conditions are created for the full swing of the economy of the country concerned. Branko Milanovic, expert of the World Bank and member of G17, makes it clear that the significance of the return of FRY to the IMF and the WB is both economical and political. "We get international recognition, the 'stamp' that we are a normal country which is a pre-condition for the foreign investors in general to come to us, and we can expect an inflow of financial means. This does not mean, however, that everything these experts advise us to do is always necessary and the best solution for us, just as the allegation that foreign currency solves everything".

If all that is not a problem, the question that arises is why the former regime did not strive to return FRY into the IMF? Perhaps the explanation can be found in the latest statement of the prominent representative of the Socialist Party of Serbia (SPS) and former negotiator with the world financial organisations Dr. Oskar Kovac in the federal assembly on the occasion of the election of Mladen Dinkic for the governor of the National Bank of Yugoslavia, when he stressed that "reception in the IMF cannot be the condition Dinkic needs to satisfy in order not to be relieved of duty before his term in office expires, because it is the simplest task only if there is readiness to sell one's own sovereignty". Before him the "logic" of the former regime was clearly presented in 1997 by the former president of Montenegro Momir Bulatovic when he said that "it would have been any better in FRY if it were a member of the IMF, because in what country people live better on IMF and WB loans"? Therefore, the former regime put "protection of sovereignty of the state and its people" above everything else! Independent economists publicly used to say that “it is not at all a question whether it is better or worse for the population if the economy works, but the question at stake is who and why did not want during all these past years Yugoslavia to return to international financial organisations and get 'assurances' that the state is normal”. The answer is very simple: the “assurances” would have to a large extent tied the hands of the regime and it would not have been able to do everything it did do using the sanctions and the outer wall of the sanctions as a pretext, but starting in fact solely from their own interests. The regime was not all concerned about the consequences which, for example, economist Stojan Stamenkovic, scientific associate of the Institute of Economic Sciences, warned against “that if by 1999 FRY does not join the IMF it will lag behind the world for a whole century and if it fails to do so by 2000, we will not have regression in development measured in decades but in centuries”. The regime thought it was enough for it to declaratively claim that Yugoslavia was in favour of return of FRY into international financial organisations, primarily the IMF and the WB, because as the then federal prime minister Radoje Kontic claimed it was “an essential condition for the achievement of the objectives of economic policy of the federal government”, or rather “one of strategic commitments of FRY”.

Membership of FRY in the IMF was suspended on December 14, 1992. Since then, due to the fact that FRY kept insisting on the continuity with SFRY and therefrom on it being the only successor of the former joint state, its status in this organisation has not been resolved. In the meantime, all the countries of former Yugoslavia have been recognised by the IMF as successors and their shares in the assets and liabilities of SFRY determined. In this distribution, FRY got the biggest share – 36.52 per cent which, surprisingly, it immediately accepted, same as Croatia the share of which was determined to be 28.5 per cent, Slovenia with its 16.4, B&H 13.2 and Macedonia 5.4 per cent. In other words, Yugoslavia got 335-million worth of special claims. Quotas in the IMF were then revised in February 1999, and this amount increased to 468 million worth of special claims or about 650 million dollar worth of credit Yugoslavia could count on immediately after joining the IMF. The SFRY has used about 4-billion worth of special claims especially between 1979 and 1990, and by 1992 it got a five-year loan of 4.5 billion dollar.

At the time of the sanctions, the IMF discontinued all contacts with FRY, and after Dayton it seemed that things would slightly change. Oskar Kovac declared that “FRY has set aside a sum of money in foreign currency needed to pay the debt to the IMF so that it would be capable immediately after lifting of the sanctions to meet the conditions set by the IMF”. In January 1997 the government of Yugoslavia informed the IMF that it agreed to its determined share but on condition that “this does not prejudice the solution of the status of FRY in other organisations, especially in the succession process”. On other conditions of the IMF determined by the decision of its committee of executive directors reached on December 14, 1992 (that Yugoslavia inform the Fund that pursuant its laws it agreed to inherit the membership under stated conditions, that it would meet all the obligations it had to the Fund and that the Fund finally determine that the country successor was capable to meet the assumed obligations), Yugoslavia was expected to declare its decision within six months. The then governor of the National Bank of Yugoslavia Dragoslav Avramovic had certain contacts with the representatives of the IMF and the WB in the course of 1996 which were described by Radoje Kontic as “talks of technical nature”. They were aimed at collecting data on the status of Yugoslav economy and on succession which turned out to be an insurmountable obstacle in the attempts of the governor to somehow reconcile political stands of the leadership with economic needs of the country. The formal offer of the Yugoslav party during talks in Paris in March 1996 to separate the question of the membership of Yugoslavia in this organisation from the question of continuity, that is, to separate the property and legal issues and economic questions formally in the jurisdiction of the IMF from political and legal questions formally in the jurisdiction of the UN, ended with a conflict of governor Avramovic and the federal government in which the governor ended up with the dirty end of the stick and his stands stated in Paris were described as a private opinion. All later contacts between the FRY and the IMF were reduced to the latter's prolonging every six months the deadline for regulation of relations of Yugoslavia with this organisation which happened exactly 15 times so far. It is needless to say what the consequences are. As an illustration what the ban of access to the international market of capital means, Dusan Vujovic, expert of the WB, gives the example of simultaneous appearance of Yugo cars and Korean Hyundai on the market of the USA. “In the meantime the Korean manufacturer of cars has produced two technological generations and nowadays it is selling millions of cars not only in America, and our Yugo is used by artists to make abstract sculptures”. Another detail is very indicative. The interest for the total Yugoslav debt which is estimated to amount to 13 to 14 billion dollars increase this debt by 1.5 to 2 million dollars every day, so this aspect is not at all negligible when speaking of the need to regulate relations with the IMF as soon as possible in order to initiate talks on returning the debts with the others.

Of course, the experts in the federal government are aware that what will follow after rejoining the IMF will not at all be easy. In explaining that the federal government is satisfied with the course of negotiations with the IMF, Miodrag Kovac, minister of labour, health and social policy does not conceal that among other the Fund demands that Yugoslavia offer guarantees that it will implement federal laws on its entire territory which at this moment, at least when Montenegrin regime is concerned, is completely out of the question. As Nebojsa Savic from the Economic Institute in Belgrade warns and deputy federal prime minister Miroljub Labus confirms, it is clear that the stabilisation program of FRY must be agreed with the IMF.

It would be good, Savic believes, if the existing disparity of prices be by then corrected as much as possible, and if a monetary injection or donation such as the one when Telecom was sold in 1997 were used to achieve that, in order to enter the year 2001 with current and not transferred prices. It would be good if this current rise would not exceed ten per cent although possible inflation of up to 50 per cent was mentioned in the talks with the IMF. It would also be good if by April next year at the latest an agreement about the joint state would be reached with Montenegro in order to be able to implement the program in the second quarter of 2001, at its beginning or end. It remains to be seen whether in full normalisation of relations with the international financial institutions after the change of the regime in Yugoslavia, apart from the economic issues, political issues will also persist, such as the status of Kosovo, the division balance with the other former Yu republics, the cooperation with the Hague Tribunal, or whether they will be discussed elsewhere. All analysis indicate that Yugoslavia needs badly between 1.5 and 2 billion dollars of annual foreign investments in order to move its economy from the standstill. As the new authorities constantly stress that their goal is not to live off foreign aid, but they have no money of their own, the only way out that exists is the one chosen – the normalisation of relations with the international financial institutions and reforms in the country. It is neither easy nor painless, but it at least offers some prospects for the future.

Tatjana Stankovic

(AIM)